A mandatory mortgage fact sheet for home buyers has recently been suggested to educate them about LMI.
LMI, a one-off premium that the home buyer pays, does not in fact protect borrowers. It covers the mortgage lender for any kind of shortfall between the value of the mortgage owed and the value of the home in case the borrower defaults.
It is often confused with mortgage protection insurance, which is an insurance policy that covers mortgage borrowers for the payment of installments on their mortgage should any unforeseen situations arise, such as unemployment, illness or death.
The fact sheet, which would be comprised of only one page, is intended to educate consumers about the costs and the benefits of LMI when they are taking out a home loan.
The intention is to allow consumers to compare quotes side-by-side, including the difference in premiums and rebate schedules, in order to help them find the right deal.
The Treasury was against the introduction of a scheme to allow LMI to be transferred between lenders, arguing that it would be too expensive and complicated to implement and administer, and would probably benefit less than 1 per cent of the borrowers.
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